Before the start of a full-scale war, Russia and Ukraine were major trading partners. In 2021, Ukraine ranked 15th in the list of Russia’s main external trading partners, its share was almost 2%, and the trade turnover between the countries exceeded $12 billion. But during the year of the war, these figures were reduced to a minimum. BBC Russian Service toldhow the economic ties between Moscow and Kyiv collapsed, Meduza retells this material.
According to Rosstat, in 2021 Ukraine supplied Russia with goods worth $4.2 billion, Russia, in turn, exported goods and services worth $7 billion to Ukraine. In March 2022, imports from Russia to Ukraine fell to $42 million and exports to $4.2 million.
BBC notes that the Ukrainian economy in the conditions of war and aid from other countries “becomes more open and integrated into the world.” At the same time, Russia has to “invent complex supply chains in order to transport goods into the country.”
According to experts interviewed by the publication, a shadow market of trade will develop between Russia and Ukraine. In addition, Ukraine continues to ensure the transit of Russian gas to Europe, which is paid for by Russia under international contracts. In the first nine months of 2022, Gazprom paid regarding $700 million for gas transit through Ukraine. Economists consider these figures insignificant: in the same year, Kyiv received $32 billion in aid from Western partners, of which $14 billion were grants.
Power system
Oleksandr Kharchenko, director of the Ukrainian Center for Energy Studies, noted that following the start of the war in Donbass in 2014, Ukraine made a strategic decision to switch to the energy system of the European Union. Prior to that, Russia and Ukraine had a common energy system, which was preserved following the collapse of the USSR.
The decision to switch to the EU energy system was due to the fear that Russia might start blocking electricity supplies to Ukraine, while the country would not have enough of its own capacities. Synchronization of the energy systems of Ukraine and the EU was planned for 2023, however, due to the start of a full-scale Russian invasion on February 24, 2022, this synchronization was carried out earlier “in an incredibly short timeframe.” Oleksandr Kharchenko noted that if Ukraine were still working in synchronization with the Russian and Belarusian energy systems, “we would have been given a national blackout.”
Gasoline
On February 24, 2022, the supply of Russian fuel also stopped. According to Sergey Kuyun, director of A-95 Consulting Group, 60% of the gasoline and diesel market in Ukraine was associated with supplies from Russia and Belarus. Officially, Kyiv claims that since the spring of last year it has not been buying oil products from Russia, but, according to some data, they are still imported into the country on documents from other jurisdictions. In Ukraine, Lukoil also continues to operate, which is probably carrying oil from Russia.
Nuclear fuel
After February 24, Ukraine refused to supply nuclear fuel from Russia, which is used in nuclear reactors. If before the full-scale invasion, Westinghouse and the Russian TVEL supplied fuel, now it is only an American company. In addition, Ukraine uses its own fuel reserves. The Ukrainian authorities have said that they plan to start producing nuclear fuel themselves and supply it to other countries that refuse Russian supplies.
fertilizers
Since February 2022, the Ukrainian market has lost a “significant part of imports” of mineral fertilizers. Previously, Ukraine received from Russia raw materials for the production of fertilizers (ammonia and natural gas), and from Belarus – potassium, phosphorus and complex fertilizers. However, there was no shortage of fertilizers on the Ukrainian market, since regarding a third of agricultural land was either mined or not cultivated for economic and technical reasons. Additional damage to Ukrainian agriculture was caused by the blocking of Black Sea ports by Russia, which prevented Kyiv from exporting grain.
According to experts, Russia most likely will not feel the loss of the Ukrainian fertilizer market.
Banks
By 2014, three Russian state-owned banks (Sberbank, VTB and Vnesheconombank) and several private ones, including Alfa-Bank, were operating in Ukraine. Russian state-owned banks provided loans to large state-owned enterprises in Ukraine, industry and the military-industrial complex. In 2014, two Russian banks were closed – the Ukrainian subsidiary of VTB and the small bank Petrocommerce-Ukraine. Sberbank and Prominvestbank (a subsidiary of VEB) closed on February 25, 2022.
Alfa-Bank, which had been operating in Ukraine since 2001, was renamed Sence Bank following February 24, and then control over it was transferred from Mikhail Fridman, Petr Aven and other shareholders to an independent manager, the former Minister of Finance of Bulgaria Simeon Dankov.
mechanical engineering
This industry accounted for the largest market share of Ukrainian exports to Russia. In 2021, mechanical engineering accounted for 23% of Ukrainian exports to the Russian Federation. In 2014, Ukraine banned trade with Russian defense companies, as a result, Russia was no longer able to buy turbines from the Nikolaev plant Zorya-Mashproekt. The BBC calls it a strategic loss for both countries. Later, Ukraine agreed on the supply of turbines to India.
At the same time, despite the start of the war in Donbas in 2014 and a full-scale invasion in 2022, the trade in equipment continued. In October 2022, the SBU announced the arrest of the 83-year-old former head of the country’s largest aviation company Motor Sich, Vyacheslav Boguslayev. According to investigators, the plant, in agreement with Rostec, illegally supplied military goods for Russian attack aircraft.
